economics semester 1 final

Substitution Effect

The change in the quantity of a good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive.

Monopolistic competition

A market structure where many firms sell products that are similar but not identical, allowing for product differentiation and some control over pricing.

Price

Reflects the monetary value assigned to a product, service, or resource.

Market economy

The decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions.

Law of Supply

Other things being equal, the price and quantity supplied of a good are positively related

Comparative Advantage

In producing a good or service, if the opportunity cost of producing the good or service is lower for that individual than for other people.

Economics

The study of scarcity and choice

Diminishing Marginal returns

An economic principle where adding more of one input to a production process, while keeping other inputs fixed, eventually leads to smaller and smaller increases in total output

Production Possibilities Curve

Illustrates the trade-offs facing an economy that produces only two goods and shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced

Inelastic

A low responsiveness of the quantity demanded or supplied to changes in price.

Price discrimination

The practice of selling the same good or service to different consumers at different prices, not based on differences in cost.

Allocative efficiency

When resources produce the greatest total benefit; MB = MC

Oligopoly

A market structure in which a small number of firms dominate the market, leading to interdependent decision-making among the firms

Opportunity cost

What you must give up in order to get an item

Competitive market equilibrium

Achieved when profit-maximizing producers and utility-maximizing consumers settle on a price that suits all parties

Equillibrium

An economic situation in which no individual would be better off doing something different

Utility

A measure of personal satisfaction

Price elasticity of demand

A measurement of the change in the demand for a product as a result of a change in its price

Price takers

Firms whose actions have no effect on the market price of the good or service it sells

Monopoly

A market structure characterized by a single seller that produces a unique product with no close substitutes, resulting in the firm being the sole provider in the market.

Law of demand

A higher price for a good or service, all other things being equal, leads people to demand a smaller quantity of that good or service

Economies of scale

Long-run average total cost declines as output increases

Microeconomics

The study of how people make decisions and how those decisions interact

Nash Equillibrium

A situation in game theory where each player's strategy is optimal, given the strategies of all other players, and no player has an incentive to deviate unilaterally

Diminishing marginal utility

Each successive unit of a good or service consumed adds less to total utility than does the previous unit.

normal vs inferior goods

A good for which a rise in income increases the demand for that good vs a good for which a rise in income decreases the demand for the good

deadweight loss

Losses associated with quantities of output that are greater than or less than the efficient level, as can result from market intervention, such as taxes, or from externalities, such as pollution

accounting vs economic profit

accounting profit=TR-explicit cost

economic profit=TR-explicit cost-implicit cost

factors of production

land, labor, capital, and entrepreneurship

complements vs substitutes

Products that are consumed together and complete each other vs Products that offer similar satisfaction and can replace one another

short run vs long run

The time period in which at least one input is fixed vs the time period in which all inputs can be varied

consumer surplus

The difference between the maximum price a consumer is willing to pay and the actual price paid

dominant strategy

A strategy that yields the highest payoff for a player, regardless of the strategies chosen by other players

cost curves

ATC (average total cost), AFC (average fixed costs), AVC (average variable costs), MC (marginal cost)